Putin’s trap set for Italian companies remained in Russia

More than 200 large European companies continued to do business in Russia after the outbreak of war in Ukraine, as they had before the invasion. According to the Yale University listing, a dozen of them are Italian: giants like Unicredit and leading brands like Benetton and De Cecco. However, they now risk having to pay a heavy bill. A “Russian trap” as defined by EUobserver.

One of the reasons for staying in the country is actually related to Moscow’s tax breaks to keep foreign companies. So far, EUobserver writes, “Most European companies have paid almost no tax on their profits in Russia due to advantageous double taxation agreements.” However, last March, Russia’s Ministry of Finance, like EU countries, “proposed the freezing of these tax treaties with about 40 ‘enemy’ countries that impose sanctions on Russia”. The new rules could impose a tax of up to 25% on earnings from the country.

Such pain could push giants like Armani, Austria’s Red Bull, Dutch Phillips and Heineken, and even France’s Accor and Germany’s Bosch to reconsider their plans and leave Russia. But here is Putin’s potential pitfall: strategic companies such as banks (eg Italian Unicredit) and energy companies now have to obtain permission from the Foreign Investment Commission of the Moscow Ministry of Finance to sell their Russian assets. Independent Russian newspaper Novaya Gazeta wrote that it does not grant more than 10 leave per month, so much so that the current waiting list has over 700 applicants. To make escape even more difficult, Moscow plans a 10% tax on goods sold by companies wishing to leave the country. “We are creating the conditions so that the exit (from Russia, ed.) is not beneficial for foreign companies,” Minister Anton Siluanov told Russia 24 TV channel last March.

What will European companies do when faced with this trap? The threat of a 25% profit tax remains for now. If Putin implements this, the tax benefits they have enjoyed so far will certainly not be. Moreover, these companies would find themselves reluctantly financing Moscow’s coffers and thus the army at war. Selling liquor or clothes to Russian citizens is one thing, sharing the profits with the Kremlin is another.

The EU Commission seems to want to reach out to what’s left in Russia. After the war, Brussels banned more than 1,600 Russian individuals and organizations from transferring funds from the EU. In addition, European law firms were prohibited from providing business services to their Russian clients. As the Commission proposed in its latest sanctions package, these two borders will be lifted as long as they serve the necessary operations for EU companies to leave Russia. The message from Brussels may go home to the “prodigal son”. We’ll see who seizes the opportunity.

Source: Today IT